Personal income is not taxed in some states in the United States, and thats the reason for this article of the states with no income tax in the US. When you live in a state where there is no income tax, less money is deducted from your paycheck each month, and when tax season rolls around, you only need to file a federal return.
The rest of the nation is divided into nine states that have a flat income tax that applies to all residents regardless of their income level, and 32 states (plus D.C.) that have a progressive income tax that requires higher earners to pay a larger percentage of their income than lower earners do.
Choose outlines what taxpayers need to be aware of before relocating to one of these tax-friendly places in the sections below. We also give our recommendations for the top online tax preparation tools for filing your state (if applicable) and federal returns as tax season approaches.
What to think about before relocating to a state with no income tax
While relocating to a state with no income tax may sound alluring, there are costs involved. States without an income tax will frequently increase their inhabitants’ sales, property, or excise taxes to make up for the lost revenue (taxes on goods like fuel, tobacco and alcohol).
For instance, the Tax Foundation, a think tank based in Washington, D.C., reports that Tennessee has the highest total sales tax rate in the country at 9.53%. At 49.4 cents per gallon, Washington State has one of the highest gas tax rates in the country. Property tax revenue accounts for the majority of the state’s income in New Hampshire and Alaska, which depend on it in proportions of 67.6% and 51.8%, respectively.
The state also heavily relies on taxes as a source of revenue to fund public services including infrastructure, healthcare, and education. Reduced tax revenues will probably result in less money being allocated to these programs.
For instance, South Dakota spends the least on education of any Midwesterner state, at $10,073 per student year. Florida, Nevada, Tennessee, and Texas all spend less than the average state per pupil than the $12,612 national average.
Take into account the aforementioned elements, as well as the general cost of living and employment prospects in your industry, when assessing how affordable another state is. When moving out of a big city, for instance, you might have to make certain compromises, like taking a job with lesser pay in exchange for a home with lower rent.
Furthermore, if your total income exceeds the standard deduction, you’ll probably still owe federal income taxes even if you reside in a state with no income tax. You can use a federal income tax calculator, like this one from SmartAsset, to estimate how much you will pay for taxes based on your age and filing status.
Tax deadlines and information on online tax preparation software
The IRS began receiving and processing tax returns for the 2022 tax season on January 24, so tax season is already well under way.
Normally, taxes are due on April 15; however, this year, tax day will be April 18, 2022, as April 15 occurs on a holiday in Washington, D.C. Although most states have the same deadline, a handful have pushed it out a few extra weeks. The filing deadline for your state is available here.
The federal tax filing deadline is quickly approaching, so it’s time to start gathering your 2021 tax records. And to make sure your taxes are submitted safely, you should think about registering for an online tax service like H&R Block or TurboTax rather than mailing them to the IRS.
Because each tax platform is made for a particular type of tax return, from simple tax returns to sophisticated returns, it’s critical to choose the one that best suits your needs.
Tax-Free States: Advantages and Drawbacks
Many Individuals who live in states with high income taxes may find it appealing to move to a state where there are no state taxes. States must still raise enough money to pay for services and infrastructure; nothing is free.
If you don’t pay income tax, you probably pay more in other taxes, such as sales or real estate. Even with this significant tax benefit, living in a state with no income tax may be costly due to low earnings and limited work opportunities.
Top 9 States With No Income Tax In The US
From Here Down Is The Full List Of The States With No Income Tax In The US
Alaska is the first state in our list of the states with no income tax in the US. Both a personal income tax and a sales tax are absent from Alaska. The Trans-Alaska Pipeline System oil exports provide the majority of its income.
Alaska receives a surplus of income during periods of high and steady oil prices, which it puts into the Alaska Permanent Fund. By submitting an application for proof of residency, citizens can participate in the fund’s annual profits, which are made up of a diverse portfolio. However, with the current decline in oil prices, there has been discussion about enacting a state income tax.
Another state on our list of the states with no income tax in the US is Florida, it is a well-liked state due to its year-round warm weather, expanding economic prospects, and lack of a state income tax. Despite not having an income tax, the state levies a 6% sales tax, which is more than the national average.
Vegas, 25 May 2020 – Special lockdown cityscape of the New York New York Hotel & Casino and the famed Strip at dusk.
At the third list of the states with no income tax in the US we have Nevada here, Nevada compensates for not collecting state revenue by levying a 6.85% sales tax rate, which is higher than the national average. Residents of Clark County pay a total of 8.38% in sales tax, which includes both state and municipal taxes. Although the tax is expensive for residents, it is necessary for the state to remain financially stable because it depends on tourists.
4. New Hampshire
Now The New Hampshire is another best shot when it comes to states with no income tax in the US. Income from interest and dividends is subject to a 5% tax in the state of New Hampshire. Yet, the state does not levie income taxes on the W-2 wages of any residents.
5. South Dakota
The state of South Dakota has a small population. If you reside in this area, you pay a low sales tax of 4.5% and pay no income tax, making it one of the states with no income tax in the US. Yet, South Dakota has poor employment prospects and a low minimum pay of $10.80.
Tennessee has totally eliminated its income tax as of January 1st, 2021, including the Hall tax, which levied a 1% tax on interest and dividend income. The reported W-2 salaries are not taxed, so with all of these said about the Tennessee we can come to conclude that it is indeed one of the states with no income tax in the US.
And we won’t be forgetting Texas amongst the states with no income tax in the US. Although there is no income tax in Texas, there is a 6.25% sales tax as well as some of the highest property taxes in the country. Even with the income tax reduction, paychecks don’t have much purchasing power because Texas’s minimum wage is only $7.25.
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At the eighth list of the states with no income tax in the US we have Washinton. The state of Washington levies a higher sales tax to generate money since there is no income tax to rely on. The state’s tax rate, which is 6.5%, is one of the highest in the country. The minimum wage in Washington is $15.74 per hour.
This is the ninth on our list of the states with no income tax in the US. Wyoming is a business-friendly state since it has no personal or business income taxes. The sales tax is a fair 4% as well. Wyoming, a significant energy producer, collects oil production taxes to make up for the absence of a state income tax.
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